The industry must make sure global insurance programmes are compliant worldwide

Global insurance programmes are under the spotlight. Foreign regulators are increasingly looking at whether international insurance programmes are compliant with local laws.

The problem is that these multi-jurisdictional insurance policies, purchased by global companies to provide blanket cover anywhere in the world, generally have been sold without proper consideration of their limitations.

Multi-national companies may operate in hundreds of jurisdictions around the world, each with its own set of insurance regulations that can change quickly. In some places, foreign companies are not admitted to write insurance; in others, they require special clearance. Premium taxes are another hurdle: they have to be appropriately calculated according to where the risk is located. And claims payments could be subject to double taxation if not handled correctly.

This is a vital issue for insurers, brokers and risk managers. Big buyers expect their insurance partners to be able to service their global insurance needs.

The risks of non-compliance are increasing and many insurance regulators have started to enter into formal co-operation agreements. In January, the Qatar Financial Centre Regulatory Authority and Oman’s Capital Markets Authority began to work together on insurance supervision. And in the past six months New York signed similar agreements with Bermudian and German regulators.

In the wake of the financial crisis, politicians want to show they are acting in the interest of stability – and that means the financial police will be cracking down. A foreign company acting illegally overseas is the perfect target for a local regulator eager to flex its muscles and win popular support. All this has dragged compliance to the top of corporate agendas.

As well as being squeezed by the regulators, insurers and brokers are being asked tough questions by their customers. Risk managers are nervous, because their necks could also be on the line if global programmes are found to be breaking the rules. A hardening market also makes buyers much more inquisitive about the products they are sold.

Some insurers have tried to address this issue. In the spirit of increased transparency, they have started to reveal where they are admitted to write insurance and where they are not. In the process they have learnt to distinguish themselves by demonstrating their programmes are globally compliant. Others are stuck with old processes.

Buyers remain confused at the industry’s inconsistent response – some are annoyed they may have been sold products that were not strictly legal. This is another knock a tarnished industry can ill-afford to receive.

There are clear opportunities for those who know the ins and outs of global insurance regulation. Considering the complexity of the issues around compliance, it is no wonder risk managers want to offload the responsibility, providing many opportunities for intermediaries to provide products and services.

Just because their insurers are compliant does not absolve buyers of responsibility, however. They need to demonstrate diligence – asking their partners about international insurance rules will be, for many, the first move. The industry should be prepared to have the right answers.

Key points

• Global insurance programmes are under increased scrutiny from financial regulators

• Administering them is not easy but it is an issue the industry needs to face up to

• There are opportunities for insurers and brokers to distinguish themselves

• Buyers, whose necks are on the line as well, are confused and annoyed